DJ Petrofac Limited: RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022
Petrofac Limited ( PFC) Petrofac Limited: RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022 11-Aug-2022 / 07:00 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.
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RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022
First half highlights
-- H1 financial performance in line with guidance with good momentum in AS and IES, offset by challenges inE&C's mature portfolio
-- Business performance EBIT of USUSD2 million(1)(2)
-- Reported net loss of USUSD(14) million(2) inclusive of separately disclosed items
-- Group order intake of USUSD1.1 billion(3) with book-to-bill of 0.9x
-- Healthy 18-month Group pipeline of USUSD57 billion
-- High levels of bidding activity in E&C with opportunities expected to be awarded evenly over the secondhalf
-- Backlog of USUSD3.7 billion
-- Net debt of USUSD341 million(6) and liquidity of USUSD511 million(7)
-- Free cash flow in second half expected to be broadly neutral
Six months ended 30 June 2022 Six months ended 30 June 2021 (restated)(9)
USUSDm Business Separately disclosed Reported Business Separately disclosed Reported
performance items performance items
Revenue 1,228 n/a 1,228 1,595 n/a 1,595
EBIT 2 n/a n/a 49 n/a n/a
Net profit / (loss) (35) 21 (14) 41 (130) (89)
(2)
Sami Iskander, Petrofac's Group Chief Executive, commented:
"Our performance in the first half continues to reflect the COVID-19 related industry challenges, as we work towards completion on many of the projects in the legacy E&C portfolio. Moving into the second half of 2022, a significant increase in bidding activity has put us firmly on the path to grow backlog over the full year. Supported by a strong commodity price environment and an increasing focus on energy security, the outlook for the industry is robust and the work we have done over the past 18 months means that Petrofac enters this important period in a strong competitive position.
"We made good progress on our new energies strategy having entered into a collaboration with Hitachi Energy, a leading player in HVDC and HVAC technology, to provide joint grid integration and associated infrastructure for the rapidly growing offshore wind market. This collaboration strengthens our market position and the large pipeline of opportunities supports our USUSD1 billion revenue ambition from new energies in the medium term.
"Our priorities in the second half of the year are clear. First, we will continue to safely deliver the existing backlog for our clients, while maintaining cost discipline. Second, we will focus on closing out the delayed commercial settlements, to unwind working capital and return to positive free cash flow from 2023. Lastly, we will make progress in securing awards in E&C to deliver growth in full year backlog. Our recent USUSD200 million provisional award in Algeria, while small, is evidence of our competitiveness and marks the beginning of a multi-year upcycle."
DIVISIONAL HIGHLIGHTS
Engineering & Construction (E&C)
E&C financial performance in the first half was in line with the guidance given in the trading update, reflecting the lingering effects of the pandemic, including some relatively unfavourable commercial settlements with clients. The decline in revenue reflected lower levels of activity compared with the prior year period as well as progress delays on certain projects. The EBIT loss of USUSD44 million reflected the immediate recognition of the additional Covid-related project costs to completion and the adverse impact of operating leverage from lower revenue.
In the second half, subject to the outcome of commercial settlements, E&C expects to report a marginal EBIT profit.
E&C financial results for the six months ended 30 June 2022(1)(2)
-- Revenue down 40% to USUSD0.7 billion (H1 2021: USUSD1.1 billion)
-- EBIT down to USUSD(44) million (H1 2021 restated(9): USUSD21 million)
-- EBIT margin down to (6.5)%
-- USUSD0.2 billion of new order intake
Asset Solutions (AS)
AS delivered a robust financial performance in the first half, with revenue of USUSD0.5 billion, marginally below prior year due a slower start in executing new awards and the strengthening US dollar. EBIT margin decreased to 6.5%, in line with guidance and lower than prior year due to contract mix and the completion of high margin MENA contracts in 2021 (H1 2021 restated(9): 8.4%).
Order intake(3) was strong with USUSD0.9 billion contract awards and extensions secured in the first half, representing a book-to-bill of 1.7x. This included USUSD0.6 billion of awards in the Wells & Decommissioning service line, including awards in Australia and the Gulf of Mexico where we leveraged our unique integrated decommissioning offering at scale.
Asset Solutions financial results for the six months ended 30 June 2022(1)(2)
-- Revenue down 3% to USUSD508 million (H1 2021: USUSD526 million)
-- EBIT down 25% to USUSD33 million (H1 2021 restated(9): USUSD44 million)
-- EBIT margin down 1.9 ppts to 6.5%
-- USUSD0.9 billion of awards, representing a book-to-bill of 1.7x
New Energy Services has an established position in offshore wind, enhanced by the recently signed collaboration with Hitachi. In our other focus areas (carbon capture, hydrogen and waste-to-value), the strong momentum of 2021 has continued into 2022, leading to a series of early-stage awards. Our strategy for these emerging areas is to develop alliances with technology providers and develop a strong engineering track record to position the Group for project execution work as markets mature.
Integrated Energy Services (IES)
IES delivered strong financial performance in the first half, with a significant increase in production compared with prior year and benefitting from higher oil prices. Alongside this increase, we delivered a material reduction in emissions intensity through a well workover to isolate a gas zone of the reservoir.
Net production for the first half of the year was 553 thousand barrels of oil (kbbls) (H1 2021: 210 kbbls), reflecting the additional production from the East Cendor development, which commenced in June 2021, and the partial reinstatement of the main Cendor field production with a temporary gas lift system following the outage that occurred in December 2020.
IES financial results for the six months ended 30 June 2022(1)(2)
-- Revenue increased to USUSD56 million (H1 2021: USUSD15 million)? Average realised oil price(5) up 44% to USUSD99/boe, including the impact of hedging - Net equity production up 163% to 553 kbbls
-- EBITDA increased to USUSD44 million (H1 2021: USUSD4 million)
-- EBIT of USUSD21 million (H1 2021: USUSD(6) million) SEPARATELY DISCLOSED ITEMS
The reported net loss(2) of USUSD14 million (H1 2021 restated(9): USUSD89 million) includes a net credit for separately disclosed items and certain re-measurements of USUSD21 million (H1 2021 restated(9): charge of USUSD130 million). This comprised impairment adjustments to our fixed assets, fair value gains on disposals and charges relating to cloud ERP software implementation costs. Consistent with previous periods, all COVID-19 related costs have been treated as business performance.
CASH FLOW, NET DEBT AND LIQUIDITY
In the first half there was a free cash outflow of USUSD193 million, which resulted in net debt of USUSD341 million at 30 June 2022 (31 December 2021: USUSD144 million). This was largely driven by lower EBITDA, a working capital outflow, and the payment of the USUSD104 million SFO Court penalty, partly offset by USUSD98 million of divestment proceeds related to the Greater Stella Area and the Mexico operations. The increase in working capital was primarily a result of the delays in concluding commercial settlements in E&C and the release of provisions in Asset Solutions following the completion of certain contracts.
Liquidity(7) was USUSD511 million at 30 June 2022 (31 December 2021: USUSD705 million) and the Group remained in compliance with its banking covenants(8). Due to the expected timing of commercial settlements, net debt at the year end is now expected to be broadly in line with the position at 30 June 2022. This is principally due to timing as certain receipts previously expected in the second half of 2022 are now expected to be received in the first half of 2023.
DIVIDEND
The Board recognises the importance of dividends to shareholders and expects to reinstate a dividend policy in due course, once the Group's performance has improved.
ORDER BACKLOG
The Group's backlog decreased marginally to USUSD3.7 billion at 30 June 2022 (31 December 2021: USUSD4.0 billion), reflecting progress delivered on the existing project portfolio and low new order intake in E&C, partly offset by strong order intake in Asset Solutions.
30 June 2022 31 December 2021
USUSD billion USUSD billion
Engineering & Construction 1.8 2.4
Asset Solutions 1.9 1.6
Group backlog 3.7 4.0
IMPLEMENTATION OF 1TEC
We are making excellent progress in embedding 1tec, our functional excellence and value assurance programme. This will be the backbone of our consistent best-in-class execution to a single global Petrofac standard as we rebuild the backlog and transition back to delivering sector-leading margins in the medium term.
OUTLOOK
The market outlook for E&C continues to improve and we are optimistic that the opportunities we are bidding on will start to be awarded in the second half of the year. E&C has a USUSD45 billion 18-month pipeline of opportunities, with USUSD7 billion of bids already submitted and a further USD7 billion under tender. Opportunities scheduled for the second half of 2022 are expected to be awarded evenly over the period. Our reinstatement to ADNOC's commercial directory provides significant growth potential from 2023, and activity is picking up across many of our core markets.
The E&C pipeline includes USUSD7 billion relating to New Energy Services. Approximately 70% of this relates to offshore wind where, through the collaboration with Hitachi, we are well positioned to compete on a large number of HVDC offshore wind opportunities in Germany and the Netherlands. For the other new energies sectors, we have applied a risk factor to the pipeline to reflect that they are less mature and the timing of awards is uncertain.
E&C has USUSD0.6 billion of backlog scheduled for execution in the second half of 2022 and is expected to deliver a marginal EBIT profit in H2 2022.
Asset Solutions has a USUSD12 billion 18-month pipeline of opportunities, with USUSD4 billion scheduled for award by the end of 2022. While the order intake is expected to be first-half weighted, Asset Solutions is expected to deliver a book-to-bill greater than 1.0x for the full year in 2022. There are attractive near-term opportunities for all service lines, both in the UK and internationally, as we continue to successfully leverage our market-leading UK integrated services capability to support clients around the globe.
Asset Solutions has USUSD0.5 billion of backlog scheduled for execution in the second half of 2022 and EBIT margins for the full year are expected to be in line with the 5-6% guidance range.
In IES, net production in the second half is expected to increase further, with guidance for full year average production maintained at 3.0-3.5 kbbls/d (H1 2022 average net production: 2.9 kbbls/d). Assuming an average USUSD100 Brent price for unhedged production for the remainder of 2022, IES is now expected to deliver EBITDA of between USUSD90 million and USUSD100 million.
Overall, we are optimistic about the outlook for the second half, with improved Group performance and the start of a sustained period of backlog growth.
NOTES 1. Business performance before separately disclosed items. This measurement is shown by Petrofac as a meansof measuring underlying business performance. 2. Attributable to Petrofac Limited shareholders. 3. New order intake is defined as new contract awards and extensions, net variation orders and the rollingincrement attributable to Asset Solutions contracts which extend beyond five years. 4. Backlog consists of the estimated revenue attributable to the uncompleted portion of Engineering &Construction division projects; and, for the Asset Solutions division, the estimated revenue attributable to thelesser of the remaining term of the contract and five years. 5. Average net realised price is net of royalties and hedging gains or losses. It is based on sales volumes,which may differ from production due to under/over-lifting in the period. 6. Net debt comprises interest-bearing loans and borrowings less cash and short-term deposits (i.e. excludesIFRS 16 lease liabilities). 7. Gross liquidity of USUSD511 million on 30 June 2022 consisted of USUSD430 million of gross cash and USUSD81million of undrawn committed facilities. Gross cash included USUSD32m held in certain countries whose exchangecontrols significantly restrict or delay the remittance of these amounts to foreign jurisdictions. It also includedUSUSD233m in joint operation bank accounts which are generally available to meet the working capital requirements ofthose joint operations, but which can only be made available to the Group for its general corporate use with theagreement of the joint operation partners. 8. Certain adjustments for one-off costs related to COVID-19 were permitted for the calculation of EBITDAfor the purpose of testing the covenants. The Group was compliant with its covenants throughout the six monthsended 30 June 2022 (see note 16 of the consolidated financial statements). 9. The prior period numbers are restated in relation to the adoption of the IFRIC decision on cloudconfiguration and customisation costs in April 2021; see note 2.6 of the interim condensed consolidated financialstatements.
FINANCIAL STATEMENTS
Click on, or paste the following link into your browser, to view the Group's financial statements for the six months ended 30 June 2022: https://www.petrofac.com/media/vnjlzzjz/petrofac-half-year-2022-results-financial-statements_.pdf
PRESENTATION
Our half year results presentation will be held at 8.30am today and will be webcast live via: https:// broadcaster-audience.mediaplatform.com/#/event/62e7c859368bde6d2842e876
ENDS
Disclaimer:
This announcement contains forward-looking statements relating to the business, financial performance and results of Petrofac and the industry in which Petrofac operates. These statements may be identified by words such as "expect", "believe", "estimate", "plan", "target", or "forecast" and similar expressions, or by their context. These statements are made on the basis of current knowledge and assumptions and involve risks and uncertainties. Various factors could cause actual future results, performance or events to differ materially from those expressed in these statements and neither Petrofac nor any other person accepts any responsibility for the accuracy of the opinions expressed in this presentation or the underlying assumptions. No obligation is assumed to update any forward-looking statements.
For further information contact:
Petrofac Limited
+44 (0) 20 7811 4900
Jonathan Yarr, Head of Investor Relations
jonathan.yarr@petrofac.com
Sophie Reid, Group Head of Communications
sophie.reid@petrofac.com
Tulchan Communications Group
+44 (0) 20 7353 4200
petrofac@tulchangroup.com
Martin Robinson
NOTES TO EDITORS
Petrofac
Petrofac is a leading international service provider to the energy industry, with a diverse client portfolio including many of the world's leading energy companies.
Petrofac designs, builds, manages and maintains oil, gas, refining, petrochemicals and renewable energy infrastructure. Our purpose is to enable our clients to meet the world's evolving energy needs. Our four values - driven, agile, respectful and open - are at the heart of everything we do.
Petrofac's core markets are in the Middle East and North Africa (MENA) region and the UK North Sea, where we have built a long and successful track record of safe, reliable and innovative execution, underpinned by a cost effective and local delivery model with a strong focus on in-country value. We operate in several other significant markets, including India, South East Asia and the United States. We have 8,200 employees based across 31 offices globally.
Petrofac is quoted on the London Stock Exchange (symbol: PFC).
For additional information, please refer to the Petrofac website at www.petrofac.com
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ISIN: GB00B0H2K534 Category Code: IR TIDM: PFC LEI Code: 2138004624W8CKCSJ177 OAM Categories: 1.2. Half yearly financial reports and audit reports/limited reviews Sequence No.: 180595 EQS News ID: 1417977 End of Announcement EQS News Service =------------------------------------------------------------------------------------
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August 11, 2022 02:00 ET (06:00 GMT)
